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Student Loan Repayment

Student Loan Repayment

 

            As any college graduate knows, the loan repayment letters eventually find their way to your mailbox. There are two main types of repayment options: traditional and income-driven.            Traditional repayment plans consist of standard, graduated and extended repayment plans. Income-driven plans include income based, income contingent, income sensitive, pay as you earn and revised pay as you earn repayment plans.

            Under the standard repayment plan, the borrower pays a fixed amount every month for 10 years.  The graduated repayment plan allows for lower payments at first and then the payments increase (usually every two years). The borrower also will pay off the loan in 10 years with this option.

            With the extended repayment plan, payments can be fixed or graduated, but the repayment time is 25 years. To choose this repayment plan, borrowers must have an outstanding balance of $30,000 or more.

            Income-driven repayment plans set the monthly payment at an amount that is intended to be affordable based on the graduate’s income and family size. Here is a brief description of these plans:

 

  • Income based repayment (IBR) plan - The monthly payment generally is 15 percent of the borrower’s discretionary income. For those who are not new borrowers (borrowed on or prior to July 1, 2014). The payment generally is 10 percent of discretionary income for new borrowers (those who borrowed on or after July 1, 2014). The loan balance remaining after 20 years for new borrowers and 25 years for the not-new borrowers will be forgive. The borrower will have to pay income tax on the amount forgiven.

 

  • Income contingent repayment (ICR) plan - The monthly payments are calculated as the lesser of 20 percent of the borrower’s discretionary income or what would be paid on a fixed payment plan over 12 years. The loan balance remaining after 25 years will be forgive, but the borrower will pay income tax on the amount forgiven.

 

  • Pay as you earn (PAYE) - This plan caps payments at 10 percent of discretionary income. This plan is only for those who were borrowers after Oct. 1, 2007, and not have received a disbursement of a direct loan since Oct. 1, 2011. The remaining loan balance is forgiven after 20 years. The borrower will pay income tax on the amount forgiven.

 

  • Revised pay as you earn (REPAYE) - This plan is similar to the PAYE plan, but it is open to borrowers who have had loans at any time.

 

  • Income sensitive plan - This is only for Federal Family Education Loan Program loans, so new graduates who only have Direct Loans will not qualify for this plan.

 

            To see what plan or plans you are eligible for or to calculate what your monthly payments would be under each of these repayment plans, visit www.studentloans.gov. After logging in, you can use the Repayment Estimator Tool to enter your income and family size. The tool will calculate payments under each of these plans.

 

 

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